AWMA UPDATED COMPREHENSIVE EXAM ALL
QUESTIONS AND ANSWERS SURE A+
✔✔This year, you worked with Jim Stowe in establishing a money purchase plan at
Stowe Inc. Stowe Inc. is a closely held C corporation, with Jim owning 75% of the stock.
The company's money purchase plan provides for contributions of a flat 20% of
compensation. You also determined that Jim's annual retirement savings need was
$30,000. His current annual income is $180,000. Jim is the only 5% owner-employee,
but there are three other highly compensated employees at Stowe Inc. He is now in the
process of getting a divorce, and his retirement savings need has increased to $47,000.
Although Jim feels that he can save the additional $17,000 per year, he is interested in
finding the most tax-favorable means to do so. Jim's personal income tax rate is higher
than the corporation's tax rate. Also, he does not feel that Stowe Inc. can make a
significant increase in the contribution to the money purchase plan with 57 employees
cu - ✔✔Establish an offset SERP that would be designed to provide his retirement
income need, minus the benefit provided under the qualified plan.
Although an excess benefit plan could increase the future benefit for Jim, he needs
more than the 20% specified in the plan. Through a SERP, the total benefit can be
greater than the formula provided under the money purchase plan.
Module 6-3
,✔✔Dewayne is married to a noncitizen spouse. He would like to gift half of his property
to her this year outright. Which statement correctly evaluates the gift tax implications of
a gift transfer to a noncitizen spouse?
A) The transfer will qualify for the unlimited gift tax marital deduction.
B) The transfer will qualify for the gift tax annual exclusion and the gift tax super annual
exclusion.
C) The transfer will qualify for the gift tax super annual exclusion.
D) The estate tax marital deduction is not permitted for transfers to a noncitizen spouse.
- ✔✔C) The transfer will qualify for the gift tax super annual exclusion.
A super annual exclusion is available for completed gifts of a present interest that would
otherwise qualify for the marital deduction. The super annual exclusion replaces the gift
tax annual exclusion, and is $157,000 in 2020. Transfers to a noncitizen spouse do not
qualify for the unlimited marital deduction. Use of a QDOT (qualified domestic trust)
would qualify for the estate tax marital deduction, but not a gift tax deduction.
Module 7-4
✔✔The administration of ERISA is divided among all of these government entities
except the
A) Department of Labor.
B) Pension Benefit Guaranty Corporation.
C) Internal Revenue Service.
D) Securities and Exchange Commission. - ✔✔D) Securities and Exchange
Commission.
✔✔You have a client who you suspect is being coerced into making large, unusual
distributions from his account. As an adviser, what should you do first?
A) Use the tenets of the Elder Justice Initiative to put a temporary hold on distributions
from the account
B) Use the Senior Safe Act to put a temporary hold on distributions from the account
C) Assume the best and do nothing
D) Attempt to contact a listed "trusted person," possibly gathered through the
requirements of FINRA Rule 4512 - ✔✔Use the tenets of the Elder Justice Initiative to
put a temporary hold on distributions from the account
Module 1-2
✔✔Assume you own XYZ Stock Fund that returned 14% over the past five years, during
which the stock market returned 12%. This fund has a beta of 1.1 and the risk-free rate
of return is 4%. What is Jensen's alpha for this fund?
,A) 2.0
B) 9.1
C) 6.0
D) 1.2 - ✔✔1.2
14 − [4 + (12 − 4) 1.1] = 14 − [4 + 8.8] = 14 − 12.8 = 1.2.
✔✔The CAIA divides hedge funds into four main categories. Which of strategy is one of
these four main approaches?
A) Mezzanine financing
B) Business development companies
C) Opportunistic
D) Stable value - ✔✔C) Opportunistic
Module 3-3
✔✔According to John Brown in his book Exit Planning: The Definitive Guide, when
ranking the four most commonly used exit planning strategies from most utilized to least
utilized, the order is
A) insider transfer, transfer to children, third-party transfer, ESOP.
B) transfer to children, insider transfer, third-party transfer, ESOP.
C) insider transfer, third-party transfer, transfer to children, ESOP.
D) ESOP, transfer to children, third-party transfer, insider transfer. - ✔✔C) insider
transfer, third-party transfer, transfer to children, ESOP.
Module 4-6
✔✔For the current tax year, Paul, an individual taxpayer with an AGI of $265,000, has
$3,500 of investment interest expense and $38,500 of investment income. He paid
investment adviser fees of $6,800. How much investment interest expense, if any, may
Paul deduct in the current tax year?
A) $37,000
B) $0
C) $3,500
D) $38,500 - ✔✔C) $3,500
Investment interest expense is deductible up to the amount of net investment income.
Net investment income is simply the investment income of $38,500. However, the
amount deducted may not exceed the amount of actual interest expense incurred
($3,500). The investment adviser fees are not deductible and do not enter into the
calculation.
Module 5-2
, ✔✔Which statement generally represents the tax consequences to an employer and
employee under a nonqualified deferred compensation plan?
A) An employer will receive a deduction when the employee recognizes income.
B) An employer will receive a deduction when contributions are made to informally fund
a plan, and the employee must recognize an identical amount as income at the same
time and for the same reason.
C) An employer will not receive a deduction for plan distributions when paid, but the
employee will recognize income when the amount credited to his or her account is
nonforfeitable.
D) An employer will receive a deduction for plan contributions when paid, and the
employee will not be taxed on the contribution until withdrawn. - ✔✔An employer will
receive a deduction when the employee recognizes income.
Module 6-4
✔✔Which statement regarding a foreign situs trust is correct?
A) These trusts are used because there are no states with debtor friendly trust laws.
B) The foreign jurisdiction allows access to trust assets only by creditors who register in
the jurisdiction.
C) These trusts are often costly to establish and maintain.
D) All assets of the trust must be physically located in the foreign jurisdiction. - ✔✔C)
These trusts are often costly to establish and maintain
Module 7-5
✔✔Which statement correctly summarizes the Big Five personality traits as they relate
to the differences between financial salespeople and financial planners?
A) Salespeople ranked higher in extraversion and planners higher in agreeableness.
B) Salespeople ranked higher in agreeableness and planners higher in
conscientiousness.
C) There is very little difference between the extraversion and agreeableness rankings
of salespeople and planners.
D) Salespeople ranked higher in openness and planners higher in extraversion. -
✔✔Salespeople ranked higher in extraversion and planners higher in agreeableness.
Module 8-5
✔✔Using the capital asset pricing model, what is the expected return for a stock where
its beta is 1.20, the risk-free rate is 4%, and the market rate of return is 10%? (Set
calculator for four decimal places to reduce rounding error.)
A) 8.8%
B) 11.2%
C) 16.0%
QUESTIONS AND ANSWERS SURE A+
✔✔This year, you worked with Jim Stowe in establishing a money purchase plan at
Stowe Inc. Stowe Inc. is a closely held C corporation, with Jim owning 75% of the stock.
The company's money purchase plan provides for contributions of a flat 20% of
compensation. You also determined that Jim's annual retirement savings need was
$30,000. His current annual income is $180,000. Jim is the only 5% owner-employee,
but there are three other highly compensated employees at Stowe Inc. He is now in the
process of getting a divorce, and his retirement savings need has increased to $47,000.
Although Jim feels that he can save the additional $17,000 per year, he is interested in
finding the most tax-favorable means to do so. Jim's personal income tax rate is higher
than the corporation's tax rate. Also, he does not feel that Stowe Inc. can make a
significant increase in the contribution to the money purchase plan with 57 employees
cu - ✔✔Establish an offset SERP that would be designed to provide his retirement
income need, minus the benefit provided under the qualified plan.
Although an excess benefit plan could increase the future benefit for Jim, he needs
more than the 20% specified in the plan. Through a SERP, the total benefit can be
greater than the formula provided under the money purchase plan.
Module 6-3
,✔✔Dewayne is married to a noncitizen spouse. He would like to gift half of his property
to her this year outright. Which statement correctly evaluates the gift tax implications of
a gift transfer to a noncitizen spouse?
A) The transfer will qualify for the unlimited gift tax marital deduction.
B) The transfer will qualify for the gift tax annual exclusion and the gift tax super annual
exclusion.
C) The transfer will qualify for the gift tax super annual exclusion.
D) The estate tax marital deduction is not permitted for transfers to a noncitizen spouse.
- ✔✔C) The transfer will qualify for the gift tax super annual exclusion.
A super annual exclusion is available for completed gifts of a present interest that would
otherwise qualify for the marital deduction. The super annual exclusion replaces the gift
tax annual exclusion, and is $157,000 in 2020. Transfers to a noncitizen spouse do not
qualify for the unlimited marital deduction. Use of a QDOT (qualified domestic trust)
would qualify for the estate tax marital deduction, but not a gift tax deduction.
Module 7-4
✔✔The administration of ERISA is divided among all of these government entities
except the
A) Department of Labor.
B) Pension Benefit Guaranty Corporation.
C) Internal Revenue Service.
D) Securities and Exchange Commission. - ✔✔D) Securities and Exchange
Commission.
✔✔You have a client who you suspect is being coerced into making large, unusual
distributions from his account. As an adviser, what should you do first?
A) Use the tenets of the Elder Justice Initiative to put a temporary hold on distributions
from the account
B) Use the Senior Safe Act to put a temporary hold on distributions from the account
C) Assume the best and do nothing
D) Attempt to contact a listed "trusted person," possibly gathered through the
requirements of FINRA Rule 4512 - ✔✔Use the tenets of the Elder Justice Initiative to
put a temporary hold on distributions from the account
Module 1-2
✔✔Assume you own XYZ Stock Fund that returned 14% over the past five years, during
which the stock market returned 12%. This fund has a beta of 1.1 and the risk-free rate
of return is 4%. What is Jensen's alpha for this fund?
,A) 2.0
B) 9.1
C) 6.0
D) 1.2 - ✔✔1.2
14 − [4 + (12 − 4) 1.1] = 14 − [4 + 8.8] = 14 − 12.8 = 1.2.
✔✔The CAIA divides hedge funds into four main categories. Which of strategy is one of
these four main approaches?
A) Mezzanine financing
B) Business development companies
C) Opportunistic
D) Stable value - ✔✔C) Opportunistic
Module 3-3
✔✔According to John Brown in his book Exit Planning: The Definitive Guide, when
ranking the four most commonly used exit planning strategies from most utilized to least
utilized, the order is
A) insider transfer, transfer to children, third-party transfer, ESOP.
B) transfer to children, insider transfer, third-party transfer, ESOP.
C) insider transfer, third-party transfer, transfer to children, ESOP.
D) ESOP, transfer to children, third-party transfer, insider transfer. - ✔✔C) insider
transfer, third-party transfer, transfer to children, ESOP.
Module 4-6
✔✔For the current tax year, Paul, an individual taxpayer with an AGI of $265,000, has
$3,500 of investment interest expense and $38,500 of investment income. He paid
investment adviser fees of $6,800. How much investment interest expense, if any, may
Paul deduct in the current tax year?
A) $37,000
B) $0
C) $3,500
D) $38,500 - ✔✔C) $3,500
Investment interest expense is deductible up to the amount of net investment income.
Net investment income is simply the investment income of $38,500. However, the
amount deducted may not exceed the amount of actual interest expense incurred
($3,500). The investment adviser fees are not deductible and do not enter into the
calculation.
Module 5-2
, ✔✔Which statement generally represents the tax consequences to an employer and
employee under a nonqualified deferred compensation plan?
A) An employer will receive a deduction when the employee recognizes income.
B) An employer will receive a deduction when contributions are made to informally fund
a plan, and the employee must recognize an identical amount as income at the same
time and for the same reason.
C) An employer will not receive a deduction for plan distributions when paid, but the
employee will recognize income when the amount credited to his or her account is
nonforfeitable.
D) An employer will receive a deduction for plan contributions when paid, and the
employee will not be taxed on the contribution until withdrawn. - ✔✔An employer will
receive a deduction when the employee recognizes income.
Module 6-4
✔✔Which statement regarding a foreign situs trust is correct?
A) These trusts are used because there are no states with debtor friendly trust laws.
B) The foreign jurisdiction allows access to trust assets only by creditors who register in
the jurisdiction.
C) These trusts are often costly to establish and maintain.
D) All assets of the trust must be physically located in the foreign jurisdiction. - ✔✔C)
These trusts are often costly to establish and maintain
Module 7-5
✔✔Which statement correctly summarizes the Big Five personality traits as they relate
to the differences between financial salespeople and financial planners?
A) Salespeople ranked higher in extraversion and planners higher in agreeableness.
B) Salespeople ranked higher in agreeableness and planners higher in
conscientiousness.
C) There is very little difference between the extraversion and agreeableness rankings
of salespeople and planners.
D) Salespeople ranked higher in openness and planners higher in extraversion. -
✔✔Salespeople ranked higher in extraversion and planners higher in agreeableness.
Module 8-5
✔✔Using the capital asset pricing model, what is the expected return for a stock where
its beta is 1.20, the risk-free rate is 4%, and the market rate of return is 10%? (Set
calculator for four decimal places to reduce rounding error.)
A) 8.8%
B) 11.2%
C) 16.0%
